HTA Shells Out $2.8B for Duke Realty Portfolio

The nation’s largest owner and operator of medical office buildings will become even larger with the acquisition of 78 health-care properties totaling 6.1 million square feet.

The flurry of big-ticket medical office building portfolio trades over the last year continues as Healthcare Trust of America Inc., already the largest dedicated owner and operator of medical office buildings in the United States, strikes a deal that will make it even larger. The 11-year-old REIT just inked an agreement to purchase Duke Realty Corp.’s MOB assets and medical development platform for approximately $2.8 billion.

Scott Peters
Scott Peters, chairman & CEO of Healthcare Trust of America

HTA will snap up Duke’s collection of 78 MOB properties totaling 6.1 million square feet and boasting an average occupancy level of 94 percent, as well as two developable land sites consisting of 17 acres.

“Duke’s medical office portfolio is a high quality mix of primarily on-campus properties that are uniquely well-located, with 85 percent located in HTA’s existing key markets,” Scott Peters, chairman & CEO of Healthcare Trust of America Inc., said in a prepared statement. “In addition, we believe the combination of our best in class property management and leasing platform and their development platform creates a full-service platform that can consistently execute and deliver disciplined growth in this expanding sector.”

Indeed, the MOB sector continues to thrive. As noted in a report by commercial real estate services firm CBRE Inc., MOB tenant demand is spurred by demographic trends, as opposed to economic growth, so as an asset class, these properties are even recession resistant. The good times in the sector are expected to persist. “Overall, both tenant and investor demand for MOB should remain solid in 2017. Fast-growing metros will provide more new product and opportunities for expansion, while many slower-growing metros will offer large, reliable tenant pools and more value-add investment opportunities,” according to the report.

Per terms of the acquisition agreement, HTA will, at Duke’s behest, accept $330 million of seller financing as a senior secured first mortgage loan. If all goes as planned, HTA will complete the purchase of the Duke assets in a series of tranches during the second and third quarters of this year, taking Duke Realty one big step closer to its goal of becoming the top pure play industrial REIT in the U.S.

The HTA-Duke deal dwarfs some of 2016’s biggest MOB transactions, including Starwood Property Trust’s $838 million purchase of a 38-property portfolio from NorthStar Realty Finance Corp., and Physicians Realty Trust’s acquisition of 52 assets from Catholic Health Initiatives in a $703.5 million deal.